Health co-ops inspire debate

James Oliphant

With prospects fading that the Senate will include a government-run insurance option in healthcare reform legislation, congressional Democrats and Republicans are already sparring over an alternative -- a series of private regional cooperatives that advocates say could achieve the goals of a public plan without the potential for government interference.

The key negotiators in the Senate -- the so-called Gang of Six of three Republicans and three Democrats from the Senate Finance Committee -- are scheduled to meet today by teleconference to discuss prospects for keeping a bipartisan health plan alive, which could hinge on the acceptability of co-ops to both sides.

One of the six -- Democrat Kent Conrad of North Dakota -- is the leading Senate proponent of co-ops. He and others point to cooperatives in Seattle and Minnesota that employ doctors and own their own healthcare facilities, giving them more control over costs and the quality of care. Conrad says that under his plan, the federal government would play no role in managing the co-ops, but would only provide seed money to help them get started.

Sen. Michael B. Enzi of Wyoming, a Republican member of the negotiating team, says he supports a co-op provision in the bill as long as it is not "hijacked" to get a "government-run program in place."

The White House has been adamant that healthcare reform legislation needs to create more competition in the health insurance marketplace, expand insurance to millions who do not have it, and drive down costs.

President Obama's favored mechanism is a federal insurance plan -- the so-called public option -- which could give consumers an alternative to private insurers and put pressure on the industry to reduce costs. Bills passed by committees in the House of Representatives contain that option.

But conservative opposition, based on arguments that a federal plan would have unfair advantages and ultimately drive private insurers out of business, has risen sharply. The chances of a public option emerging from the Senate Finance Committee are now considered almost zero.

Senators seeking a compromise hope that the White House, its liberal allies and Republicans might find common ground in co-ops. Supporters say co-ops offer improved service and are cheaper because they don't have to turn a profit. They would return revenue to their members in the form of lower premiums and be self-governed by elected boards. And the co-ops might help the White House achieve its goal of providing competition to private insurance companies.

Although Obama prefers a public option, "if there are others that have ideas about how we can institute choice and competition, he's happy to look at those," White House spokesman Robert Gibbs said Wednesday.

But the Senate negotiators are already encountering opposition to co-ops. Arizona Sen. Jon Kyl, part of the Republican leadership in Congress, launched a new attack this week, saying co-ops would be no different than a government plan. He contends that the federal government would probably provide funding and tax advantages to the co-ops -- which would put private insurers at a disadvantage -- and would also exert so much regulatory authority that the co-ops would operate as virtual federal entities.

Liberals who favor a federal insurance option say the co-ops are prone to insolvency and probably can't be structured to be large enough to secure favorable rates from doctors, hospitals and drug companies. The smaller co-ops would be entering a crowded field dominated by larger insurers with greater capital and market leverage.

It could take three to four years for a co-op to be federally chartered and established, said Karen Davis, president of the Commonwealth Fund, which advocates for high-quality healthcare. "But the real issue is, how long does it take before they have sufficient enrollment to really get good prices from hospitals and doctors," Davis said. "That's at the heart of this. Would they be able to get discounts that lower premiums?"

The Congressional Budget Office has estimated that 10 million to 12 million Americans -- about 4% of the population -- could take advantage of co-ops.

But co-ops are "unlicensed, unregulated," Sen. John D. Rockefeller IV (D-W.Va.) said in a recent interview. "Nobody has ever done any study . . . of how they would affect health insurance in a bill the magnitude of the size we're doing."

Unless the Senate Finance Committee negotiators arrive at a compromise on co-ops, the partisan fight over them could be just as fierce as the current debate about a federal insurance plan.

Republicans are in danger "of appearing to reject any solution to healthcare as opposed to what they say are bad solutions," said Julian Zelizer, a professor of history and public affairs at Princeton University. "Just as Democrats have a history of fighting among themselves, Republicans have a tradition of going too far."

Republican pollster Bill McInturff, who has been surveying the public on healthcare, disagreed. "Given the perception of President Obama's strength of leadership and the huge Democratic majorities, there has been little evidence Republicans are 'paying a price' for being obstructionist," McInturff said.

Language has yet to be completed for a possible Senate bill to create private, member-owned healthcare cooperatives. But a chief proponent of the idea, Sen. Kent Conrad (D-N.D.), has outlined how they might work. Cooperatives could be formed to serve states or larger regions. They would:

* Be self-governed by elected boards, not run by the federal government.

* Act as the insurers for their members, as opposed to purchasing insurance.

* Contract directly with networks or providers for healthcare, or in some cases employ physicians or own facilities outright.

* Be required to abide by the same rules as private insurance companies regarding reserves, reinsurance and benefit packages.

The federal government would provide seed money so that the co-ops would have sufficient capital to grow. Republican critics say that this would open the door for greater federal involvement later. Other critics of co-ops argue that they would not be large enough to compete with private insurers, meaning that their members could end up paying higher premiums than those who have other forms of insurance. Co-ops, they say, would not become a viable option for many who do not have employer-based insurance.